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The share capital is the total amount of the contributions of goods and money that the partners of a company must bring in return for company rights. This capital is collected when the company is founded and is divided into several shares with nominal values, corresponding to the number of partners. This amount, which is defined at the time of the company’s official declaration, must appear on all official company documents, including invoices, and may vary according to the company’s growth.
Whether it is a limited liability company or a public limited company or any other type of legal form, the share capital is essential and can be changed. This article explains how share capital is formed or modified and what the different types are.
What is the purpose of share capital?
As mentioned above, the share capital is an amount that is raised by all the partners and that allows a company to start its activities. Thus, it allows the first expenses related to the company to be covered, whether in terms of creation or management during the first months of operation. The share capital is also the amount used to distribute powers within a company. Thus, a partner with a larger contribution will automatically have more power than the others when decisions are made.
Similarly, it is the amount of each partner’s contribution that determines the number of dividends that each partner receives at the end of each financial year. Furthermore, in the event of the company’s bankruptcy, it is only the contributions in the share capital that will be exposed, unless otherwise specified in the company’s articles of association. The share capital thus makes it possible to preserve the personal assets of each partner. Similarly, if the company goes into liquidation or judicial protection, the amount of each partner’s capital is returned to him.
It should also be noted that the share capital of a company is also a way of reassuring all the company’s partners, banks and credit institutions, especially when it is high. Indeed, it is a good way to ensure the financing of activities in the long term. If the company has to apply to a credit institution, the application can easily be accepted if the company’s share capital is high.
Good to know
When a company's equity capital is high, it can reassure customers and suppliers. This means shareholders have made a significant investment and will therefore do whatever it takes to ensure the company's success. What types of contributions are there? In simple terms, contributions to equity capital can be in-kind, industrial or cash, depending on the activity of the company.
Industrial contributions are knowledge or know-how that is used by the partner at the start of the business. Contributions in kind can be a contribution in use or a contribution to the property. A partner can, for example, give his premises to be used by the business, or computer equipment that can be used for the operation of the business.
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